The Pros and Cons Of Fixed Annuities

There are of course pros, or positives to investing in fixed annuities. There is very little risk in fixed annuities. Should the insurance company go out of business you are guaranteed your money. The States will pay out your principal, but only up to a certain dollar amount. In addition, most fixed annuities will pay you periodically during your lifetime, reducing the possibility of outliving your retirement income. They are an attractive investment for anyone looking to reduce some of their portfolio’s risk. Some fixed annuities offer a life insurance component to the annuity contract. This would allow payment to continue to your family in the event of your death.

The pros are certainly convincing. However, there are cons, or a downside to fixed annuities. One major disadvantage is interest rates are not high when compared to other types of investments. It makes sense to only invest in fixed annuities when interest rates are high. Fixed annuity contracts are complicated. Fund fees can eat up your profits, read the fine print carefully. Fixed annuities are taxed as income and, not as capital gains like other types of investments. Another important downside is you cannot add funds to your fixed annuity. Fixed annuities are not a young persons investment vehicle. This is because money can only be withdrawn at a certain time.

Finally, there are distinct pros and cons to fixed annuities. The risk is minimal, but the return may not be high. The principal is guaranteed, however a young person may want more risk in their investment plan. Weigh the pros and cons and make an informed decision.